Day: 2013/09/08

NYT Plays ‘Choose Your Own Higher Education Ideology’

Mass Unemployment

Due to your busy Saturday schedule, you only have time to read one of two opinion articles in The New York Times about education by two university professors.

Turn to page 34 if you think that college pays off but fewer people should attend anyway (Tyler Cowan, “A Dearth of Investment in Young Workers“).

Turn to page 77 if you think we should send more people to college to ensure economic growth (Robert J. Gordon, “The Great Stagnation of American Education“).


Page 34

You choose to read Cowan’s article. Cowan tells you that young people are underemployed because (a) the minimum wage was increased in 2009, and (b) employers are concerned with “overhead,” so they don’t want to invest in training young workers. You imagine yourself telling him that the minimum wage has been destroyed by inflation and that the problem is lack of aggregate demand, and he would respond, “Shut up you filthy Krugmanite!!”

Cowan writes:

“In the legal profession, for instance, there is less interest in hiring junior associates and grooming them for partner status.”

You suspect that in the real world, rich people and corporations may bid up the prices of high-end law firms as they become wealthier, but at some point there are only so many legal services they need, especially when so many of their potential customers can’t afford much of anything.

Real GDP & Legal Sector Value Added (Billions 2005 $)

(Source: BEA)

He continues:

“Young people who are hired often fail to find desirable, high-paying jobs. If we consider four-year college graduates only, average starting salaries, inflation-adjusted, were higher in 2000 than they are today, a decline that started well before the financial crisis. On balance, though, college remains ‘a good deal,’ in part because wages for nongraduates have fallen even more than those for graduates.”

“THESE developments put economic pressure on higher education. If it’s harder to get a good and lucrative job after college, why should students pay ever-rising tuition rates? College doesn’t always prepare students very well for the work force, and most graduates don’t enjoy the relatively rosy job prospects of computer science and engineering majors.”

It occurs to you that this doesn’t make sense, as though Cowan were arguing that the problem with higher education is credential inflation and not credential inflation. Cowan appears to be suggesting that students are paying for a lower likelihood of unemployment, which should bolster college enrollments, albeit for bad reasons. Young Americans don’t really have much of a choice. Cowan’s argument would be a lot stronger if he cited evidence of declining college enrollments and declining employment and wages among college graduates.

Cowan concludes:

“Policy changes to bolster economic growth and employment, whether by simplifying the tax code, repealing some occupational licensing, bringing more rigor to K-12 schooling or accrediting cheaper online education, may help reverse or curb these trends.”

“Yeah, that’ll fill the $1 trillion output gap,” you mutter to yourself as you close your browser.

Then you get a job at Wal-Mart.



Page 77

You click on the link to the Times‘ Opinionator link to read Gordon’s article.

Gordon tells you that education causes economic growth, for over the centuries “American economic growth has gone hand in hand with rising educational attainment.” He remarks that “since 1990, that improvement has slowed to a crawl.” The problem is that more educated people are more productive because demand for technical and communications skills is growing, but demand for unskilled and semi-skilled labor is falling.

You think this is an odd statement. Most of the higher-educator types demand more education because technology has wiped out the mid-range jobs, not menial ones. There will always be demand for manual labor, it just won’t pay much. Therefore, they argue, we should send everyone to college. We need a society of Eloi lawyers, not Morlock material movers, and none of the Morlocks have law degrees—they’re educated!

But that’s only a slight difference in the typical argument.

You also wonder if things like the trade deficit contribute to the decline in employment and wages for lower-income workers because the only way for the economy to run at full capacity is if either the public sector or private sector (or both) is borrowing money from developing countries to buy their cheap-labor exports. The trade deficit tends to lead to debt bubbles, which sap people’s purchasing power and throw the economy into depressions.

But Gordon would tell you you’re wrong:

“There are numerous causes of the less-than-satisfying economic growth in America: the retirement of the baby boomers, the withdrawal of working-age men from the labor force, the relentless rise in the inequality of the income distribution and, as I have written about elsewhere, a slowdown in technological innovation.”

Uh-huh. Men voluntarily leave the labor force. Gordon treats this as an exogenous variable, not an outcome of economic depression. You do like the “inequality of the income distribution,” however.

Gordon writes about the problems with America’s primary education system, which you find agreeable. Then he discusses higher education. Gordon writes that the two problems are “quality” and “affordability.” Relative to other countries, America’s college completion rates are dropping, and the percent of graduates is lower than other countries’. Worse, tuition costs are rising and education debts are rising too. With high debts, it takes longer for college to pay off.

You wonder if Gordon’s international comparisons of completion rates and population-education rates aren’t really helpful. “So what if a smaller percentage of Americans finish college?” you ask yourself rebelliously, “Isn’t it more important if they have jobs?”

Curiously, Gordon agrees with you. One-fourth of recent college grads are underemployed or unemployed. He then adds that “A student who takes out half as much debt but drops out after two years never breaks even because wages of college dropouts are little better than those of high school graduates.”

“But wait a second!” you interject, “You said higher education increased people’s productivity. If employers don’t care about the content of the education but do care about the diploma, then that means higher education is mainly a signaling tool.” To be sure, some human capital is created in college, and it’s possible that historically it created relatively more human capital than today, but Gordon can’t say that we need to send more people to college and then admit that they aren’t actually learning anything employers demand.

Nevertheless, Gordon insists that “Our economic growth is at stake” if America’s college completion rate doesn’t rise to Canada’s.

“I guess stimulus and a weaker dollar are out,” you sigh to yourself.

Then you get a job at Wal-Mart.